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A recent decision of the U.S. Supreme Court will have wide-ranging impact in the field of employment law and should be carefully considered by all employers in assessing their current employment contracts and personnel manuals and policies. In its May 21, 2018 decision in Epic Systems Corp. v. Lewis, the Supreme Court upheld the enforceability of employer-mandated arbitration agreements with employees pursuant to the Federal Arbitration Act and specifically held that arbitration agreements which require employees to waive the right to pursue class action and collective action lawsuits are valid and enforceable. The Court resolved a split of authority on the issue among the federal appellate courts and concluded that waivers of class and collective actions do not violate the National Labor Relations Act.

The most immediate impact of the Epic ruling will be to substantially reduce the number of wage-and-hour class action suits against employers, which have skyrocketed in the last 10-15 years. It is also anticipated that the percentage of employers utilizing arbitration agreements with employees will significantly increase, especially among employers with a large number of employees who are more susceptible to costly class and collective action suits which can expose them to millions of dollars in potential liability. The Epic decision is not limited to wage-and-hour cases, but rather applies to any legal claim by an employee which is subject to an arbitration agreement requiring the employee to pursue individualized arbitration proceedings and to forego the right to a jury trial.

Arbitration agreements provide many advantages for certain employers including reduced litigation expenses, faster resolution of employee complaints, increased confidentiality, and decreased likelihood of inflated verdicts from plaintiff-oriented juries. However, arbitration agreements must be used with caution as they have several drawbacks for employers. For example, the slower litigation process which typically requires 1-2 years to progress to a jury trial is often strategically advantageous for the employer. In addition, many employment-related disputes in a litigation setting can be resolved in favor of employers using dispositive motions such as a motion to dismiss or a motion for summary judgment ruled upon by the judge long before the matter proceeds to a jury trial. Arbitration proceedings typically have limited opportunity for successful dispositive motions. Furthermore, arbitrations also afford the employer far more limited appeal rights after an adverse ruling compared to the litigation setting.

In light of the Epic decision, what are the recommended best practices for employers regarding the use of arbitration agreements? We suggest the following:

1. Employers of all sizes should promptly assess their existing employment agreements and policies with the assistance of legal counsel experienced in the area of employment law and determine if arbitration agreements would be strategically beneficial as a way of reducing potential liability to employees and/or minimizing legal fees and litigation expenses.

2. Employers which already have arbitration agreements in place should have them promptly reviewed by legal counsel and revised as needed to include a waiver of class and collective actions and to assure such agreements do not contain other provisions which could make them unenforceable as written (e.g. withholding of compensation to employees who do not execute such an agreement, which could be deemed a form of duress).

3. If an arbitration program will be adopted, a careful assessment must be made as to the scope of employment claims covered, whether it will be applied to all employees or only new employees, and the current status of applicable state and federal law in the region which will impact the program.

4. In addition, employers should regularly analyze and update existing employment policies, procedures, and contracts every 2-3 years to assure compliance with important changes in the law and to address particular HR issues faced by the employer.

Carefully drafted arbitration agreements, personnel policies, and employment contracts from experienced legal counsel can be critical in reducing potential liability exposure to employment-related lawsuits and administrative charges and in limiting the costs of defending such actions. Accordingly, employers and their HR personnel should confer with their legal counsel regarding the impact of the Epic decision on their employment practices. Kohnen & Patton’s employment attorneys are available to assist employers in carefully formulating the best strategy to address these issues.